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Then came the revelations that Volkswagen installed software on 11 million diesel cars that reduced emissions of nitrogen oxides only when the cars were undergoing emissions tests, enabling them to pass, even though in normal use their emissions levels greatly exceeded permitted levels.Volkswagen's cheating is odd, because, even – or especially – by the standard of profit maximization, it was an extraordinarily reckless gamble. Anyone at Volkswagen who knew what the software was doing should have been able to predict the company was likely to lose.Volkswagen's stock has lost more than a third of its value since the scandal broke. The company will have to recall 11 million cars, and the fines it will have to pay in the U.S. alone could go as high as $18 billion. Most costly of all, perhaps, will be the damage to the company's reputation.Honesty maximizes value over the long term, even if by "value" we mean only the monetary return to shareholders.At least among major corporations, scandals like the one at Volkswagen would then become increasingly rare.
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